While most entrepreneurs start out funding their companies through bootstrapping techniques, at some point, they must move on to other funding measures. There are many different types of financing options available, including opening credit cards, finding investors, and obtaining bank loans. Depending on the industry and the size and financial viability of the business, deciding to attract private investors can be an excellent choice. Before reaching out to potential investors, it is a good idea to conduct a thorough financial audit, seek advice, and set clear expectations regarding the outcome.
Conduct a Financial Audit
One of the most important things a business owner should do before reaching out to investors is conduct a financial audit. Professionals in the financial field, like Charles Rial, know that the due diligence process is vital for both the company and the investors. Before opening the books to outsiders, ensure that they are correct down to the last penny and that any discrepancies are resolved quickly. If necessary, hire a third party to perform the audit so that there are no surprises later on in the process. Go back several years and present the data clearly and correctly. Errors, confusing tables, and graphics with unclear labels will not reflect well on the company.
Seek Professional Advice
Most entrepreneurs form a network of colleagues, mentors, and friends over time. At least some of these contacts can come in handy when it is time to attract investors. They may be able to offer advice about their own experiences or provide trustworthy references. Talk to key employees for their perspective, as they may have new ideas involving how to cut costs or increase product value to boost profits.
Evaluate the Competition
Each industry has its own set of key players. Figure out which companies present direct and indirect competition. Try to compile as much information about those businesses as possible to get a clear picture of how to best compete against them. Investors will need to be told exactly why they should invest in this specific company as opposed to the competition. Include an analysis of exactly how the investor’s money will be spent to increase the company’s edge over the competition to return excellent profits.
Create a Clear Business Plan
Although the original idea for the business may have been scribbled onto the back of a napkin or in a crumpled-up notebook, investors will be more impressed with a professional presentation of the ideas. A professional investor will expect to see a well-written, properly formatted document that outlines all aspects of the business. The financial report, projected sales, and competition analysis should be placed in the document, along with a summary of the marketing plan and industry trends. The marketing plan will need to be strong to attract investors. A weak marketing strategy is a detriment to a company at any time, and more so when going through the process of obtaining a loan. The niche, target audience, and marketing methods should be clearly explained in the document. Industry trends can also have an impact on the growth of a business, so include any relevant data in the report.
Demonstrate Realistic Expectations
Before approaching investors, entrepreneurs should know exactly how much money they need to borrow, what it will be used for, and how the company will benefit. Asking for an excessive amount of money in the hopes of starting negotiations from a high place may backfire if investors refuse to deal at all due to the absurd demand. Although many small business owners dream of growing their company into a sprawling national or global affair, this does not happen overnight. It is much better to embrace slow, steady growth than large, erratic leaps towards the end goal. Stay informed of industry trends and make realistic plans for growth that can be realized with a decent timespan.
Perform Employee Reviews
A strong team can take a small, faltering new venture and turn it into something spectacular. While the business owner may be the most talented employee when it comes to manufacturing and logistics, other workers need to understand and implement the same processes. Otherwise, the entire success of the company weighs too heavily on one person. If something were to happen to the owner, such as an illness or a prolonged vacation, the workers need to be able to step in and take over without a disruption in operations. Perform employee reviews and ask staff members to evaluate themselves and the company as a whole. Gather input and implement changes to help workers become more efficient.
There are many reasons why a business would need to raise funds. Opportunities for growth often require extra funds to purchase new equipment, hire and train new employees, or produce extra inventory. Before making a decision, entrepreneurs should evaluate the needs of the company and the available options, as well as consult others to ensure the right choice is made.
Daniel Bailey is a known content writer from California, USA. He writes content in different niches such as social media marketing, finance, business, etc. He’s a day time blogger and night time reader currently working for some blogs. He enjoys pie, as should all right-thinking people.